House OKs limits on owning industrial banks

Banking industry scores victory as commercial companies shut out

WASHINGTON (MarketWatch) -- Big retail stores like Home Depot and Wal-Mart would be barred from owning specialized banks known as industrial-loan companies under a House bill passed late Monday.

In a victory for the banking industry, the House approved a bill that would prohibit the Federal Deposit Insurance Corp. from granting new ILC charters to commercial companies. The vote was 371 to 16.

The issue was thrust into the spotlight by Wal-Mart's
WMT, +0.30%
drive to own an ILC. The giant retailer gave up its plans to acquire such a bank in March after the banking industry and other groups opposed the bid. Wal-Mart had said it planned to use the bank only to process credit-card and other payments but opponents feared the company wanted to use it as a back door into commercial banking.

Home Depot
HD, +0.10%
is also trying to acquire an ILC. The bill would prevent that retailer and others from getting one, however. On Tuesday, Home Depot spokesman Tony Wilbert said the company is not giving up its efforts and said he hopes the FDIC will judge the retailer's applications on its merits.

"Our application is a good one, and we will continue to push for its approval," Wilbert said in an e-mail. Home Depot applied to acquire EnerBank USA more than a year ago.

The bill cleared the House Financial Services Committee on May 2. The Senate would have to pass a version of its own and send it to the president for it to become law.

"This bill will preserve the distinction between banking and commerce that is necessary to protect the integrity of our banking system," said Rep. Barney Frank, the Massachusetts Democrat who chairs the financial services committee. He said he hopes to work with the Senate on a compromise bill.

The bill got a strong endorsement from the American Bankers Association. "We now urge the Senate to take action before the wall between banking and commerce is eroded any further," said Edward Yingling, ABA president and CEO, in a statement.

For some ILCs already owned by commercial companies, the bill would restrict branch banking across state lines and restrict expanded business plans.

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